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Unit 8: Cost Audit

Self Assessment Notes

Fill in the blanks:
11. The person to be appointed as cost auditor must hold a certificate of practice from the
…………………….

12. The cost auditor is also required to perform the duties as are expected from
…………………… in general.

8.5 Cost Audit in India

The cost audit was recommended to Indian industries by Vivian Bose Enquiry Commission. The
cost audit is necessary for optimum and proper utilisation of resources by Indian industries.
Section 223-B of the companies act provides for ordering of cost audit by Central Government.
The Cost Audit (Report) Rules, 1968 laid down by the Central Government makes certain
industries to get cost books compulsory audited in every financial year.
The following items included in the cost audit report:
(i) General information regarding the company and the cost auditor,
(ii) A brief about each type of product, production and utilisation of production capacity,

(iii) Detailed information’s about the wags and salaries of the employees,
(iv) A detail note about the manufacturing process of the company,
(v) A brief report on the present cost accounting system,
(vi) Information regarding the financial position of the company of current and previous year,

(vii) Detail report about the sales of product and fixation of selling price,
(viii) A note on special expense which have been directly allocated to production process,
(ix) The cost of raw materials both in terms of quantity and price or rate,
(x) Details about the cost of power, steam and fuel used in the production process,

(xi) Information about abnormal features affecting production process of the product during
the financial year,
(xii) Details about the stores and spare parts of the company, and

(xiii) Details about depreciation policy and its implementation.
8.5.1 Cost Audit Report and Its Format

After carrying on cost audit, the cost auditor has to prepare a detail report on cost audit under
rule 1968. Under rules, on a prescribed format, the cost auditor, has to present the report before
the Company Law Board and its one copy should be sent to company to be presented on the date
before the annual general meeting of the company in 60 days in advance. If any clarification is
sought by the Company Law Board within a prescribed period of auditing, the cost auditor will
have to clarify. If the auditor violates any of the provisions of company act, he may be fined
maximum of ` 500.

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